Planet Money

3:35 pm

Wed May 8, 2013

Hospital Prices, Revealed! (Sort Of)

Economists think prices are close to magic — constantly changing signals that help people figure out what to buy and who to buy it from (and what to sell and who to sell it to).

But in health care, it seems like nobody knows the price of anything. This recent study, for example, found most hospitals can't provide an up-front price estimate for a hip replacement.

So today's government data dump for pricing information from thousands of hospitals is a pretty big deal. (Here's coverage from NPR's Shots blog; here's a nice NYT interactive that lets you compare selected prices at hospitals around the country.)

The data show massive price variation among hospitals — even, in some cases, among hospitals in the same city. There's also a huge gap between each hospital's list price and the price the government actually pays for patients who are covered by Medicare.

It's no secret that hospitals' list prices are ridiculously high and seemingly arbitrary. And today's data dump will be helpful for people who don't have insurance and are trying to figure out the price of a procedure, and to compare prices at different hospitals.

But, as Steven Brill points out, the new data are basically useless for anyone who has private insurance and is trying to shop around. That's because private insurance companies negotiate their own rates with hospitals, and the rates bear little resemblance to the list price.

Suppose you have a knee replaced at Hospital X. Aetna's discount there might mean it pays $11,000, while United Healthcare's discount might mean it pays $22,000. Or the prices could be reversed. No patient has any way of knowing. But if you're on the hook for 20% co-insurance for each policy, then you'll pay $2,200 with an Aetna policy or $4,400 with a United policy.

Private insurers are regulated at the state level, and Brill argues that states should release hospital price data for private insurance companies. Individual patients already see the price their insurance company paid — it's listed on a form called the Explanation of Benefits. So even if insurance companies don't want to participate, Brill writes, states could crowdsource price information from patients:

...state pricing centers could gather the information from patients who volunteer, in exchange for a promise that their names won't be used, to submit their Explanations of Benefits. After all, a hospital or insurance company can't claim a patient can be prohibited from talking about or making public his or her own bill.